Should ETF Investors Flock to Municipal Bonds or Treasuries in 2026?
ETF investors have two options for fixed-income holdings: the iShares National Muni Bond ETF (MUB) and the iShares 3-7 Year Treasury Bond ETF (IEI). MUB offers a lower-cost path to tax-exempt income, while IEI provides federal government backing with a higher trailing yield.
Intelligence analysis by Llama
ETF investors can choose between the iShares National Muni Bond ETF (MUB) and the iShares 3-7 Year Treasury Bond ETF (IEI) for fixed-income holdings. MUB is more affordable and offers tax-exempt income, while IEI provides federal government backing with a higher trailing yield.
Imagine you have money in a savings account, but instead of earning interest, you get to keep the interest tax-free. That's what the iShares National Muni Bond ETF (MUB) offers. It's like a special kind of savings account that helps you keep more of your money. On the other hand, the iShares 3-7 Year Treasury Bond ETF (IEI) is like a super-safe investment that earns a bit more interest, but you have to pay taxes on it.
Analysis
A $60B Vote of Confidence
The iShares National Muni Bond ETF (MUB) and the iShares 3-7 Year Treasury Bond ETF (IEI) are two popular fixed-income funds that cater to different segments of the bond market. MUB focuses on tax-exempt income, while IEI targets the belly of the Treasury yield curve. Both funds offer high liquidity and sovereign credit quality, making them attractive options for investors seeking security.
Why Cursor?
Interestingly, municipals bond tend to price with lower yields than Treasuries because of their tax exemption. This means investors are actually keeping more of their yield than if they bought comparable Treasuries. However, the performance of the muni bond fund, MUB, compared to the Treasury fund IEI, doesn't quite reflect this fact. MUB returns exceed those of IEI in most time frames, even before accounting for any tax benefits.
The Road Ahead
Investors in income tax states will see a tax benefit from MUB, but this benefit will be muted because only a small portion of the fund will include bonds from their tax state. Overall, investors looking for the security of bonds with income to boot are wise to explore the iShares National Muni Bond fund, MUB, for their investing.
Key points
- The iShares National Muni Bond ETF (MUB) offers a lower-cost path to tax-exempt income.
- The iShares 3-7 Year Treasury Bond ETF (IEI) provides federal government backing with a higher trailing yield.
- MUB returns exceed those of IEI in most time frames, even before accounting for any tax benefits.
- Investors in income tax states will see a tax benefit from MUB, but this benefit will be muted.
- The iShares National Muni Bond fund, MUB, is a more secure option due to its diversified portfolio and reduced risk of default.
If investors choose the iShares National Muni Bond ETF (MUB), they may see a higher return on their investment due to the tax benefits of municipal bonds. Additionally, the fund's diversified portfolio reduces the risk of default, making it a more secure option.
If investors choose the iShares 3-7 Year Treasury Bond ETF (IEI), they may see a lower return on their investment due to the lower yields of Treasury bonds. Additionally, the fund's exposure to the belly of the Treasury yield curve may increase its risk of interest rate fluctuations.
